Reacting to the violent swings in oil prices in recent months, federal regulators announced on Tuesday that they were considering new restrictions on “speculative†traders in markets for oil, natural gas and other energy products.
The move is a big departure from the hands-off approach to market regulation of the last two decades. It also highlights a broader shift toward tougher government oversight under President Obama.
So Jim and Bob and Bill, US based oil speculators, will have a new book of regulations dropped on them, possibly causing them to drop out of the oil speculation market completely.
Conversely, Gerald in the UK, Wilhelm in Germany, Jean Paul in France, Gurpaul in India, Ying in China, Yuri in Russia, and Abdul in Yemen won’t have to follow any of these new regulations, giving them the advantage in manipulating the oil market.
Can’t we just give the folks working in the Obama administration a big box of crayons and a fresh wall to draw on every morning to keep them hapy and their mitts off my fuel bill?
I dunno. It seems to me that we blog-chair analysts can’t just dismiss this new regulation out of hand as a failure before it even gets promulgated, by simply waving the Red Card of “free market interference”.
First of all, the oil markets, or ANY commodity futures market, is NOT a “free market”, per se.
The oil markets are much more highly leveraged than, say, equities markets. You can play in the oil market by as much as 40:1 ratio. No one should have THAT kind of economic clout.
I see some simple ways to level this market out.
1. Make futures contracts that apply to one buyer only. That way, the airlines could buy futures on Jet A-1, but then they would have to take delivery of the fuel, couldn’t market the contract. Win-win there.
2. Abolish shorting. The shorties do nothing for the market but cause the wide swings. Kill them off.
3. Abolish leverage, or at least cut it down to a reasonable level (it’s legally 2:1 in equities markets). In combo with #1 above, this will level the market.
The whole idea is to allow the trading of commodities contracts, not for speculation and profit, but to dampen the market swings. If you look at the history of commodities trading, this is why futures contracts were invented by the Dutch 400 years ago, in the first place. If we get back to that original “free market” idea, we will have oil valued where it belongs, and the value will then change only with the value of the currency it’s traded in, plus the laws of supply and demand.
Isn’t that what is called a free market in the first place?